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Robinhood 20yo trader with no income loses 700k on options, takes life

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Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#71

Earlier quoted context omitted.

Because you need to qualify for margin and the person who lent you the money agreed to lend it to you knowing that you could BK it. With student loans, the student usually doesn't have an income or assets so there needs to be more incentives to convince lenders to lend money.

I don't see how that reasoning applies to one, but not the other circumstance.

I agree with you, it's just that the one that I'd question would be the obverse. That is, student loans should either be dischargeable by bankruptcy or just not extended. If a lender can't make money in that asset class, they should fold. If that means it leaves the government the lender of last resort, that's how things should be. If that means the asset class implodes and it can't prop up a mispriced commodity, then so be it.

Ironically, I get the sense that the implosion is probably going to come less from it being a previously bloated, overpriced commodity than for now being a perceivably fraudulent one -- IE, students are (justifiably) heated about having to pay the equivalent price of a home to take a glorified webinar from "Zoom University" -- and who can blame them, really?

Now, back on topic -- what happened here was tragic. At some point, Robinhood is going to get actually sued by someone who expects peer level performance (IE TD/tastyworks/etc). It'll be interesting to see what happens there. And, it'll be interesting to see if they are sued (successfully) here. But, nothing is going to bring this young person's life back. How utterly harrowing. We hear so often about deaths of despair as a coded reference to opiate deaths. I know that suicide is a really major risk for startup founders when things go sideways (as well as gamblers), so seeing a new version of that makes me (despite the desensitization of the present moment) experience a new, unique kind of sadness. I hope this poor young man's soul rests in peace.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#72

If the quoted $700k loss was a glitch, is robinhood in any way liable here?

Most stock data firms make you agree that the information displayed may be inaccurate. If you want guaranteed accuracy, they make you pay through the nose.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#73
Read a bit and wasn't sure of the exact nature of the 700k loss, but if he somehow got access to all that credit without the assets to back it it, it would seem like people can form a pact, where person A gets credit and bets X on a thing, person B bets the counterparty -X, have X be comically large, one person gets the payoff while the other declares bankrupcty, and basically "gain X/2 for enduring bankruptcy". (We can have some variation to sweeten the pot, where the losing person gains X/2+C, winner gains X/2-C, where C= some additional money to deal with bankruptcy hassles.)

Presumably this doesn't actually happen since it's doable, so I'd be curious what -700k losses practically means.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#74
post #65

Earlier quoted context omitted.

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

The efficient market hypothesis says otherwise. If it was easier to lose money (ignoring trading costs and spreads) than it was to make money, I could easily beat the market by doing the opposite of the average joe loser.

That could also be problematic: you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit.

Though doing the contrarian move is sort of common wisdom: "sell when everyone is buying, buy when everyone is selling", of course if you understand what to sell/buy in either case.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#75

Earlier quoted context omitted.

People "made" 700k for him to lose it, less fees. Because speculative trading is a zero sum game, it creates no wealth. And no, this isn't wheat farmers hedging bad weather.

>Because speculative trading is a zero sum game, it creates no wealth. Speculative trading is a key component of markets. People speculate that X is undervalued, so they invest in X, this gives X more resources, so resources are allocated based on what people think has most potential for growth. People who continuously make bad predictions get filtered out of the market, so "what people think has most potential for g…

It's the secondary market. Companies get nothing on a bet they win or lose. People betting on a soccer game have zero effect on the future of soccer.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#76

Read a bit and wasn't sure of the exact nature of the 700k loss, but if he somehow got access to all that credit without the assets to back it it, it would seem like people can form a pact, where person A gets credit and bets X on a thing, person B bets the counterparty -X, have X be comically large, one person gets the payoff while the other declares bankrupcty, and basically "gain X/2 for enduring bankruptcy". (We…

This bargain exists already- it's called a hedge fund.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#77
post #17

On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero who beat the market at such a young age and Robinhood would be an empowering role in elevating the young and disenfranchised. That is just the reality of the market. I hope this is not setting up so that the powers that be, and the market makers can demonize trading and then regulate away all the new blood who wants to get in…

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

But the possibility exists. That you can make money by simply trading stocks, without actually putting much in too much work and time (outside of research and education).

I have a hunch, just a feeling, that the powers that be prefer that we normal people not know about how they make money by simply trading around stocks with excess money they have laying around.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#78
post #17

On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero who beat the market at such a young age and Robinhood would be an empowering role in elevating the young and disenfranchised. That is just the reality of the market. I hope this is not setting up so that the powers that be, and the market makers can demonize trading and then regulate away all the new blood who wants to get in…

Robinhood is such an ironic name for the app. The elephant in the room is, the people who Robinhood is supposedly letting buy into a vast money fountain that is the stock market already had a way to get in. The fees that other brokorages were charging shouldn't have mattered if these people were investing in the only responsible way for someone who doesn't know what they're doing... and that's buying into an index fu…

[deleted]

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#79
post #65

Earlier quoted context omitted.

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

The efficient market hypothesis says otherwise. If it was easier to lose money (ignoring trading costs and spreads) than it was to make money, I could easily beat the market by doing the opposite of the average joe loser.

You can't even take the short side of a spx put with less than a US Lifetime income of capital.

No one makes money on symmetrical markets, and they therefore are unpopular.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#80

Being able to trade with no experience and oversight is one of those things that seems like it should be illegal. I can't think of any way you can go so far in debt more quickly. Even if I tried to buy a bunch of cars or houses I can't afford I would just get rejected.

> Even if I tried to buy a bunch of cars or houses I can't afford I would just get rejected.

Try one of the auto houses or any of the sketchy mortgage brokers. They will lend to you.

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